Annuities

Annuities

a form of state loan by which the creditor periodically receives a certain income (rente), established on the basis of a gradual liquidation of the capital sum and interest on the debt. There are fixed-term and life annuities. In the case of the former, the payment of income is limited in time (usually the period is quite long) and may be transferred to another individual. In the case of lifetime annuities, income may be received only by the immediate creditor, and the payment of rente ceases with the death of the holder. The price of annuities derives from the market level of loan interest rates. The size of the annual payment on lifetime annuities is determined in accordance with the age of the creditor and statistical data on the mortality of the population. In Britain and France annuities were issued in the early 19th century in order to speed up the liquidation of termless loans, the latter being exchanged for fixed-term or lifetime loans. In non-European countries annuities spread in the 17th and 18th centuries: in the USA they were issued during the consolidation of the state debt, which arose during the War for Independence (1775–83).

Negative stories about annuities sales--not always fair or accurate, according to the National Association for Fixed Annuities--have been numerous in the national media for the past two or three years.

A bank must, to the extent practicable, keep the area where the bank conducts transactions involving insurance products or annuities physically segregated from areas where retail deposits are routinely accepted from the general public, identify the areas where insurance product or annuity sales activities occur, and clearly delineate and distinguish those areas from the areas where the bank's retail deposit-taking activities occur.

Research shows that fixed annuities are important for retirees, so it is unfortunate that most retirees do not know, understand or appreciate fixed annuities," said Chris O'Flinn, president and CEO of ELM Income Group, Inc.

Dulisse, assistant professor of financial planning at The American College, said that only about 5% of annuities sold are immediate annuities, and of them, only about 5% are immediate variable annuities.

Lipper, a Reuters company that specializes in mutual fund analysis and commentary, further indicates that even the income-producing annuities that are most comparable to fixed annuities charge an average 1.

The effects of recent tax-law changes, which would expire if Congress does not renew them, may cause people to be less keen about variable annuities, but those nearing retirement may find great value in the new risk-management tools.

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